Google search algorithms promote unfair competition

USA versus GoogleWhy the Google problem is not easy to solve

With the recently filed antitrust lawsuit by the US Department of Justice against Google, the dispute over the business models of the big tech companies continues: Once started as a small start-up, the search engine provider is said to have misused its now enormously increased market power and thus harmed consumers internally it was in the US government's lawsuit, which nearly a dozen states have joined.

"For many years, Google used anti-competitive tactics to protect and expand its monopoly in the markets for general Internet search as well as advertising and text ads - the cornerstones of its empire," accuse the lawyers of the undisputed market leader.

Since the 1990s, like other tech companies, Google has been able to launch cross-subsidized products at will, damage or buy up emerging competitors, and thus block access to markets. However, those who have become monopolists in this way have caused enormous damage. Only recently, a committee in the US Congress cracked down on the business practices of the large IT companies.

It's similar in Europe, where the EU Commission has been distributing heavy fines for years, including against Google. But this instrument remains ineffective because the big tech companies can pay billions of euros from their postage. Far-reaching legislative changes such as the Act for Digital Services and the Digital Markets Act are now intended to remedy the situation.

"There is an urgent need for competition law that is up to the real conditions on the digital markets," says Margit Stumpp, spokeswoman for media policy for the Greens parliamentary group in the Bundestag. The MEP refers to the prospect of European approaches; the first draft laws are expected at the beginning of December.

What is important is the possibility of ex-ante regulation, i.e. the intervention of the authorities before a dominant position is achieved, says Stumpp, "as well as a possibility of unbundling, independent of abuse, as a last resort in markets with damaged competition".

Exclusive contracts with leverage

Google defends itself in a blog entry against the long-awaited lawsuit from the US Department of Justice. Simply provide the best search engine that people like to use. In addition, consumers could easily switch to other providers. The lawsuit is “seriously defective” and, if successful, would artificially stimulate inferior search alternatives and lead to higher smartphone prices, writes the high-ranking Google manager Kent Walker.

In particular, the lawsuit targets the agreements that Google has made with many IT companies. For billions of dollars, device manufacturers such as Apple or Samsung, mobile network operators such as AT&T or T-Mobile and browser providers such as Mozilla or Opera use Google search as the standard Internet search.

Some of these are exclusive contracts that would exclude competitors. As a rule, however, a default setting is sufficient as a standard search in order to achieve “de facto exclusivity”, since most users would not change anything in the setting.

Google's market share for general Internet search is almost 90 percent in the USA and almost 95 percent for mobile search. The exclusive contracts and anti-competitive behavior are said to have contributed to this, according to the lawsuit. "Google is so dominant that 'Google' is not just a word to describe the company and its search product, but also a verb that means general internet searches."

Google exploited these monopolies to sell advertisements. According to the lawsuit, advertisers pay around 40 billion US dollars to Google so that they appear next to search results. It is precisely these sales that the company then “shares” in order to pay its sales partners and to bind them more closely to itself. The practice would prevent them from switching to a competitor and also create barriers for other search engine providers to enter the market.

Big and small benefit

Almost half a billion US dollars annually will cost Google about the privilege of serving as a standard search in the open source Mozilla browser. The payments make up a large part of the budget of the non-profit organization.

In an initial reaction, the commercial subsidiary, the Mozilla Corporation, is cautious: “The outcome of an antitrust case should not cause collateral damage to precisely those organizations like Mozilla, which are best positioned to promote competition and the interests of consumers to protect on the Internet. "

But even the big companies benefit massively from these deals with Google. Apple, for example, is said to have a “significant” share in the sales that Google generates with the pre-set web search in the Safari browser.

Google pays between eight and twelve billion US dollars annually to Apple, which makes up around 15 to 20 percent of global annual profits. Within Google, a conceivable loss of this privileged position at Apple, which has a higher market share in the US than in Europe, should be considered a “code red” scenario.

Google's data power is growing

In addition to these dependencies, which are lucrative for everyone involved, there is the data power with which Google can keep leaving its competition behind. Offers such as web search and advertising need "complex algorithms that constantly learn which organic search results and ads match the search queries best," the lawsuit explains.

The amount, variety and speed of the data left by users on Google accelerate the automatic learning of the search algorithms, which in turn makes the service more attractive. With the agreements, Google would secure its own data treasure and at the same time deny it to its rivals.

Experience from Europe

The lawsuit does not currently contain any concrete approaches as to how the Google problem can be solved. As a rule, such suggestions only come in as the proceedings progress, writes the New York Times. For example, a break-up or unbundling of the group or specifications that offer users more freedom of choice are conceivable.

However, experience from Europe shows that the shot can backfire. In its proceedings against the gag agreements that Google forced on its Android sales partners, the EU Commission imposed, among other things, the requirement that auctions be carried out using the standard search engine.

In many cases, however, Microsoft won the bid with its Bing offer - and even more, brought Google additional revenue. "The remedial measures of the EU serve only to further strengthen the dominance of Google", complained about the privacy-friendly search provider Duckduckgo, who went largely empty-handed at the auctions.

Problem not easy to solve

It is not easy to say how the lawsuit will be successful, writes Aline Blankertz, who heads the “data economy” project at the New Responsibility Foundation, to netzpolitik.org. "Even the three big decisions of the EU Commission against Google have so far only brought about limited changes in the affected markets," says Blankertz. At the same time, the US is familiar with this problem from Europe, which makes it unlikely that similar approaches will be adopted.

A break-up of the group, i.e. the division of the different business areas into separate companies, is often discussed. Blankertz thinks this is "unrealistic". Many would now expect that this could go in the direction of the Microsoft case. At that time, the Seattle-based manufacturer took advantage of its market position to spread its lagging Internet browser as quickly as possible.

Although the case is widely considered a success, it failed to break Microsoft's dominance in many markets, such as office software. Although the manufacturer has lost touch, especially in the important mobile area, over the years it has bought up all sorts of other companies, such as Skype or GitHub - a common practice in the IT sector that has now also landed in the sights of market watchdogs and politicians.

“The rhetoric of the US lawsuit is quite broad, but in terms of content it is largely identical to the Android proceedings of the European Commission,” says Blankertz. On the European side one is already further, since one is trying to "approach structural market problems systematically, with the Digital Services Act as well as the New Competition Tool and the Digital Markets Act". If the reform goes through as planned, the new tools could circumvent the problem of having to conduct lengthy proceedings and prove anti-competitive behavior.

The US government's lawsuit is certainly noteworthy, even if a politically motivated background is suspected. "In general, US competition law is more reluctant to intervene in markets, so it is a big step in itself that the case is now open," says Blankertz.

About the author

tomas

Tomas grew up in Vienna, worked there for various providers and also studied political science. He received his journalistic training at Heise-Verlag, where he wrote for Mac & i, c't and Heise Online. He can be reached at +49 30 577148268 or [email protected] (PGP key) and tweets sometimes more, sometimes less at @tomas_np
Published 10/22/2020 at 12:20 PM